Can China afford to challenge

the United States?

Trump calls China's bluff on a naval arms
race in the South China Sea.

Military delegates arrive before the opening of the fifth Session of the 12th National People's

Congress outside the Great Hall of the People in Beijing, on March 5 [EPA]
by
Salvatore Babones
@sbabones

Salvatore Babones is a specialist in global economic structure.

As China's parliament, the National People's Congress, meets this week in
Beijing, one problem is on everyone's mind: China's surging levels of
government and private sector debt.

For the past two years, China has been floating its economy on a massive
wave of deficit spending. State-owned firms, state-owned banks, local
governments, and the central government itself have pulled out all the stops to
maintain China's official target of 6.5 percent minimum annual gross domestic
product (GDP) growth.

This week the National People's Congress, or NPC, is widely expected to

endorse a slightly lower growth target because of concerns that government
debt is spiralling out of control. Like all countries, China faces two options
when it comes to controlling deficits: raise taxes or cut spending. With
perhaps as many as 100 billionaires sitting as members of the NPC, spending
cuts are the likely outcome.

One area where China is eyeing major cuts is defence. Throughout the early
2000s, China's defence spending grew by double-digit percentages each year.
Security experts once expected a whopping 20 percent increase for 2016. The
reality was a slowdown to 7.6 percent growth in 2016, followed by a recently
announced seven percent growth target for 2017.

WATCH: China cuts economic growth target for 2017 (2:21)

These figures are not adjusted for inflation. That means that in real terms,
China's defence spending growth is in line with or slightly below GDP growth.
Pressure on the defence budget is an inevitable consequence of China's slower
growth and ageing population. As more and more people reach old age,
China's budget priorities are shiftingtowards social services.

Western defence analysts continue to warn of a future 500-ship Chinese navy

dominating the world's oceans - or at least the Pacific - but China can ill-afford
a naval arms race. Can the United States afford one? Trump seems determined
to find out.

Trump's 12-carrier Navy

With a national debt of nearly $20 trillion and an annual budget deficit
approaching $600bn, the US is no stranger to deficit spending. But with real
interest rates on federal government debt hovering around 0.5 percent, the US
government can and does spend whatever it wants. The status of the US dollar
as the world's reserve currency gives it even greater flexibility.
President Donald Trump may be new to the office but defence is one of the few
areas where he has provided concrete details about his spending plans. Trump
has proposed a massive $54bn annual increase in defence spending, which
would push the total up from $585bn to well over $600bn. The US is already
the world's largest spender on defence - by far. Trump's proposals would
widen the lead substantially.

China should be wary of entering into a Soviet-style spending war with the
US that it cannot win.

Much of Trump's increased spending would go to increase the size of the Navy
to 350 major combat ships, up from the current 272. He wants to expand the
fleet to include 12 aircraft carrier task forces. The Navy currently boasts 10
operational aircraft carriers with an 11th, the USS Gerald R Ford, to be
commissioned in April.

Any comparison of the $13bn Gerald Ford to China's lone aircraft carrier, the
Liaoning, is meaningless. The Gerald Ford and its accompanying carrier task
force will be most powerful naval force ever built. The Liaoning is a Soviet
surplus vessel that China bought from Ukraine for $20m in 1998, then spent
16 years refitting before it could go to sea.

China's second aircraft carrier, the Shandong, is now being built with an
expected launch date in 2019 or 2020. It seems to be based on the same 20-
year-old Soviet design as the Liaoning. China has a long way to go - and a lot
of money to spend - before it begins to approach the technological
sophistication of the US Navy.

Show me the money

WATCH: Trump plans $54bn increase in military spending
(2:15)
And money is the issue. It is not just US military spending that China can't
match. It cannot match any of its spending. And in the high-stakes world of
global power projection, money is everything.
For example, China spends roughly $7bn a year on foreign affairs. The US
spends more than $47bn. Trump has been criticised for wanting to cut the
Department of State to fund the military, but even a scaled-back state
department would be by far the world's largest, just like the US military.

Ronald Reagan defeated the Soviet Union by spending it into oblivion. Early in
Reagan's presidency, the US budget deficit peaked at 5.7 percent of GDP. That
debt had to be financed at interest rates of more than 10 percent. With a
budget deficit of 3.2 percent of GDP, real interest rates of 0.5 percent, and a
much healthier economy, Trump can much more easily outspend China.

OPINION: Beijing looks for edges on cooperation with Trump

China should be wary of entering into a Soviet-style spending war with the US
that it cannot win. If Chinese naval construction provokes Japan into higher
defence spending as well, that would only compound China's problems.

With a rapidly ageing population, catastrophic air pollution, and

declining state industries, China's leaders have enough on their agenda
already. War with the US, even if it's only a spending war, is surely the last
thing they need.

Salvatore Babones is a comparative sociologist at the University

of Sydney. He is a specialist in global economic structure.

The views expressed in this article are the author's own and do
not necessarily reflect Al Jazeera's editorial policy.